Persistently weak cash flow has prompted U.S. farmers and ranchers to borrow far more money in short-term operating loans than usual, said the Kansas City Federal Reserve Bank. Loan volume of around $55 billion was 50 percent above the 10-year average, said the bank, while the soft farm economy was pulling down farmland prices throughout the western Corn Belt and Plains.
“Demand for short-term financing has continued to increase during a period of persistently weak profit margins while past-dues [past-due loans] have crept higher in recent quarters,” said the bank in its Ag Finance Databook. “A protracted period of high loan demand and weakening credit conditions could intensify the challenges in the farm sector and at agricultural banks.”
Net farm income, a measure of wealth from from production, plunged by 54 percent from 2013-2015 and is forecast by USDA to be relatively stable, although decline slightly, this year.
Operating loans, used for purposes such as crop production and livestock feeding, accounted for 62 percent of non-real-estate loans during the first six months of this year, a level reached only once, in 2009, in the past 38 years, said the Kansas City Fed.
With cash flows down, bankers have extended repayment terms on farm machinery and equipment loans, another type of non-real-estate loan, to an average 46 months, compared to the average 28 months in the preceding decade, said the bank. “Maturities on loans to finance livestock operations, excluding purchase of feeder livestock, increased to a record 20 months.”
Total farm debt during the first three months of this year was 8 percent higher than during January-March 2015. “Although the share of troubled loans has remained low from a historical perspective, the increase in loans 30 to 89 days past due could be an early indication that borrowers are struggling to repay loans in a time of tight profit margins,” said the Databook.
North Dakota posted the largest decline in land values from a year ago among the 15 states wholly or partly included in the Databook. Texas was the only state with an increase, up 5 percent. Non-irrigated cropland values fell 8 percent in Kansas, 7 percent in South Dakota and the mountain states of Wyoming, Colorado and New Mexico, and 5 percent in Iowa. Smaller declines appeared in Minnesota, Nebraska, Oklahoma, western Missouri, southern Wisconsin, northern Illinois and northern Indiana.